LONDON (CNNfn) - Cap Gemini, a French computer services and advisory firm, agreed Tuesday to acquire almost all of the consultancy arm of U.S.-based Ernst & Young in a deal valued at 11.5 billion euros ($11.3 billion).
Paris-based Cap Gemini will merge its own management consultancy unit with that of Ernst & Young, the smallest of the so-called Big Four international accountancy firms, to create one of the world's largest consulting businesses.
Cap Gemini (PCAP) shares soared after the announcement of a deal first mooted last December, and were suspended limit up before reopening with a gain of 13 percent from their Monday close, posting a lifetime high of 279 euros. That lifted the company's market capitalization to 21.6 billion euros.
The deal will expand Cap Gemini's reach in the United States, where E&Y generates 60 percent of its revenues. It also will double the share of Cap Gemini's sales that it derives from management consultancy services - more profitable than its software advisory business - to 50 percent.
The initial agreement covers E&Y operations in five European countries, the United States and Canada, but is expected to be extended to include E&Y's global consultancy practice. The E&Y business has annual revenues of 3.5 billion euros and a staff of 18,000.
Cap Gemini last month reported a 43.5 percent rise in net profit to 266 million euros for 1999 on a 9 percent rise in sales to 4.31 billion. It had more than 34,000 staff at the end of 1998.
The deal is subject to approval by Ernst & Young's partners, who would end up with 36 percent of Cap Gemini. The result of their vote is due to be published in April, with Cap Gemini shareholders scheduled to vote in June.
Cap Gemini will issue a maximum of 43.5 million new shares and pay $375 million in cash to fund the deal if all of E&Y's consulting partners agree to the terms.
Cap Gemini's move marks a new stage in the reshaping of the global accountancy and management consulting industry. PwC, the world's largest professional services company, announced plans to separate its consulting arm from its audit and tax units.